Opinion
No. 35185.
March 1, 1943.
1. DEPOSITARIES.
Where closed depository bank had given surety bonds to county and had delivered to county as security for additional depository funds, bank's drainage district bonds and bank had on deposit public funds exceeding paid surety bonds, county had a "lien" on the drainage bonds to cover unsecured public funds and board of supervisors had duty to credit proceeds of sale of drainage bonds against the deposited public moneys (Code 1930, sec. 2914).
2. DEPOSITARIES.
Where closed depository bank had given surety bonds to county and had delivered to county, as security for additional depository funds, bank's drainage district bonds and bank had on deposit public funds exceeding paid surety bonds, county board of supervisors was not authorized to contract away to surety companies duty to credit proceeds of sale of drainage bonds against deposited public funds, and hence where such crediting exhausted such proceeds, surety companies were not entitled to recover from county on agreement whereby they were to receive the balance of such proceeds after payment to county of difference between face of surety bonds and public funds covered thereby (Code 1930, sec. 2914).
3. SUBROGATION.
The doctrine of "subrogation" is derivative of a particular creditor and has no application to his prejudice where his claim has not been paid in full.
4. SUBROGATION.
Where closed depository bank had given surety bonds to county and had delivered to county, as security for additional depository funds, county's drainage district bonds and had on deposit public funds exceeding paid surety bonds and county, after enforcing its lien against drainage bonds, had not been paid in full, surety companies were not entitled, under "subrogation" doctrine, to balance of proceeds of sale of drainage bonds after payment to county of difference between face of surety bonds and funds covered thereby (Code 1930, sec. 2914).
5. BANKS AND BANKING.
Drainage district funds on deposit with county depository bank although not "county funds" were "public funds" within statute providing that money deposited in bank by an officer having custody of "public funds" is a trust fund as against bank's general creditors (Code 1930, sec. 2914).
6. DEPOSITARIES.
Where closed depository bank had given surety bonds to county and had delivered to county as security for additional depository funds bank's drainage district bonds and had on deposit public funds including drainage district funds exceeding surety bonds paid to county under agreement purportedly entitling surety companies to balance of proceeds of sale of drainage bonds after payment of difference between face of surety bonds and funds covered thereby and county had sold the drainage bonds, surety companies could not complain when county reimbursed drainage district (Code 1930, sec. 2914).
7. BANKS AND BANKING.
Where so-called revolving funds of county on deposit in closed depository bank were not private funds, they were within protection of statute providing that money deposited in bank by an officer having custody of "public funds" is a trust fund as against bank's general creditors (Code 1930, sec. 2914).
APPEAL from chancery court of Sunflower county, HON. J.L. WILLIAMS, Chancellor.
Cooper Thomas, of Indianola, for appellants.
We are not seeking in this record to recover from the county on any theory of subrogation. Our right to recover is not dependent upon the assignment of any claim to the bonding companies. On the contrary, our right to recover is founded upon the proposition that the liability of the bonding companies was no greater than their pro rata proportion of the total liability of regularly deposited funds in the depository and that the pledged assets when realized on were legally due to be applied on such depository funds and the liability of the bonding companies as sureties was for their pro rata share of the difference; that all parties recognized this right and therefore agreed that if delay was made in the collection of the pledged assets that the excess would belong to the bonding companies. It belonged to them not through subrogation, not through assignment, but because it was money collected by the county which already belonged to the bonding companies.
The surety companies are relying on the fact that they had a legal right in all of the securities pledged as security for the depository, after depository liability settled in full.
For instance, let us assume that the Gravel Bayou Drainage District Bonds had been sold at par as soon as the bank failed. That would have reduced the liability of the surety companies and of the depository by $20,000; that would have left owing by the depository and by the surety companies only the difference. The surety companies would have owed pro rata this difference. Instead of owing their entire bonds, they could have been compelled to pay only enough pro rata to have paid in full the depository liability. If that be true, then exactly the reverse is true.
When the surety companies paid their full obligation, with the agreement and understanding that when the additional collateral was sold, it would be sold by the county as an escrow agent and that this escrow agent would hold in trust for them any excess over the amount necessary to pay the depository liability and would pay it to the surety companies pro rata, we have in reverse the same legal situation and the same liabilities as if the bonds had been sold at the outset.
Why should the delay in the sale of the bonds change the liability of the surety companies?
If the surety companies are liable pro rata, if they are sued after the drainage bonds are sold, why are they not liable pro rata if they elect to pay in full before the drainage bonds are sold, but reserve their rights to reimbursements after the drainage district bonds are sold?
The disputed deposits were at most merely trust funds and not depository funds. The agreed statement of facts shows that the liquidation collected ample and sufficient funds out of the free assets of the bank with which to pay these disputed funds. The payment of these funds was provided for out of the free assets of said bank in liquidation under Section 2914, Code of 1930. There were ample assets with which to pay them, but the county selected not to take them out of the free assets, but to secure the payment of these disputed deposits out of the pledged assets to pay depository liabilities.
Why should an equity court permit securities pledged to secure depository liabilities to be used to pay off trust deposits at the expense and to the damage of the surety companies?
Johnson Allen, of Indianola, and Jackson, Young Friend, of Jackson, for appellees.
When the Bank of Indianola was closed for liquidation on December 16, 1931, there were on deposit in said bank public funds in the sum of $52,771.11. Whether the moneys were in the Bank of Indianola as a depository or whether the moneys, or any part thereof, were in the bank as trust funds, the result, so far as the appellants are concerned, will be the same.
It is the contention of Sunflower County that the learned chancellor was correct and his decision and decree should be affirmed, (1) because the funds were in the bank as a depository, and (2) certainly the funds were public moneys and trust funds.
The liability of a surety who qualifies as such under statutory provisions is not limited by the terms and wording of the contract but is compassed and canopied by the provisions of the statutes as to liability.
Hartford Accident Indemnity Co. v. Natchez Investment Co., 155 Miss. 31, 119 So. 366, 161 Miss. 198, 132 So. 535, 135 So. 497, 285 U.S. 169, 52 S.Ct. 354, 76 L.Ed. 685, 52 S.Ct. 456, 76 L.Ed. 1301.
A depository is a quasi public officer.
Miller v. Batson, 160 Miss. 642, 134 So. 567.
The provisions of official bonds are fixed by the provisions of Section 2888, Code of 1930.
Compare Maryland Casualty Co. v. Town of Terry, 184 Miss. 33, 185 So. 228.
The argument as to the surety companies' liability here is governed solely by the law under which the depository Bank of Indianola qualified.
Code of 1930, Sec. 4353.
Further, the sureties so recognized by payment of their liability in full, but with reservation of an expressed overplus attempted subrogation.
Of the $52,771.11 on deposit, appellants claim that District No. 3 Revolving Fund, District No. 4 Bond Revolving Fund, Reserve Fund of Sunflower County Health Department and the drainage district funds were not in said bank as a depository.
It is contended by appellants that only the sum of $39,556.32 was on deposit in the Bank of Indianola as a depository. Assuming for the sake of the argument that this is true, then there was on deposit in the Bank of Indianola additional public funds in the sum of $13,214.79. The surety companies paid the amount of the liability on their bonds, which was considerably less than the amount admitted by them to have been in the bank as a depository. If only the sum of $39,556.32 was in the bank as a depository, then the excess deposits of $13,214.79 over and above the admitted depository liability were trust funds for which the county is entitled to priority of payment out of all the assets of the bank. For this amount the county has a preference claim against all of the assets of the bank and the funds that were on deposit in the bank in excess of the funds on deposit in the bank as a depository are trust funds for which such preference is given. There can be no doubt that the funds on deposit in the bank claimed by appellants not to have been in the bank as a depository are public moneys and trust funds.
Potter et al. v. Fidelity Deposit Co., 101 Miss. 823, 58 So. 713; Green v. Cole, County Treasurer, et al., 98 Miss. 67, 54 So. 65; Powell v. Board of Supervisors of Tunica County, 107 Miss. 410, 65 So. 499; Sunflower County v. Bank of Drew, 139 Miss. 408, 104 So. 355; Pearl River County et al. v. Merchants Bank Trust Co. et al., 168 Miss. 612, 151 So. 756, 759; Bank of Commerce et al. v. Clark, 114 Miss. 850, 75 So. 595; Code of 1930, Sec. 2914.
Leflore County v. First National Bank of Greenwood (Fifth Circuit), 66 F.2d 9, gives no consolation to appellants here. Under either view there expressed — that is by the district court or the appellate court — this case must be affirmed, for under the amount admittedly covered by the depository bonds here, there has not been full recovery. The court in that case simply holds that as to $39,556.92, the amount here admitted by appellants to have been in the bank as a depository, it is covered. That the other funds are trust funds and subrogation does not lie until there has been full recovery.
On principle and as has been held in many cases, including the Leflore County case, supra, a surety is not entitled to be subrogated to the rights and securities of a creditor until the claim of the creditor against the debtor has been paid in full. By the order of the board of supervisors, the president of the board was authorized to execute an assignment to each of the surety companies discharging its liability, and pursuant to that order, the president of the board executed an assignment without recourse to such surety companies of the claim of Sunflower County against the Bank of Indianola subject to the right of the county to collect from the depository or others liable therefor the full amount of its funds in said depository. It is clear from the order of the board and the assignments executed that it was the intention of the board for the assignments to become effective only after all of the public funds on deposit in the Bank of Indianola had been repaid. If the order of the board and the assignments were construed as argued by counsel, they would be void as to turning over any assets of the Bank of Indianola until the county had been fully repaid for all public funds on deposit.
If there were on deposit in the Bank of Indianola only the sum of $39,556.32, as contended by appellants, secured by the surety bonds and the Gravel Bayou Drainage District bonds of the par value of $20,000, then the Gravel Bayou Drainage District bonds over and above the amount of the depository liability would be assets of the bank on which there was a preference claim for all public funds on deposit in the bank in excess of the amount in said bank as a depository.
Argued orally by Forrest G. Cooper, for appellants, and by Elbert Johnson and Forrest B. Jackson, for appellees.
The Bank of Indianola, in Sunflower County, closed its doors and went into liquidation on December 16, 1931. On that date there was on deposit, of the various public funds of the county, and including the funds of several drainage districts, a total of $52,711. For that year the bank had qualified as the official depository of the county for certain of said funds by giving five surety bonds aggregating the sum of $32,700, and had delivered to the county as security for additional depository funds $20,000 in negotiable drainage district bonds, which bonds were the property of the bank.
Of the funds above mentioned it was the contention of the surety companies, as it is now, that only $39,556 was of that character of funds for which the bank had qualified as official depository, and which, in point of law, would be covered by the depository securities, and that against this amount the county should first credit the $20,000 in pledged drainage district bonds, leaving the surety companies liable only for the balance between the $39,556 and the $20,000, assuming that the pledged drainage bonds were worth their face value.
The fact was, however, that in the depressed financial condition of the country at that time, the drainage district bonds could not be sold at anything near their face value; and the surety companies, appellants here, aver that there was an agreement between them and the board of supervisors of the county, that the surety companies would at once pay to the county the full sum of $32,700, being the aggregate amount of the surety bonds, and that the county would hold the bank's drainage district bonds until saleable at a fair market price, and that when so sold the county would first pay itself the difference between the $32,700 paid in by the surety companies and the $39,556, plus interest on that difference, and would distribute the balance ratably to the surety companies.
The agreement between the surety companies and the board of supervisors was duly entered on the minutes of the board; and for the purpose of this appeal, and for that purpose alone, we will concede that the order so entered was to the effect as averred by the surety companies, and for the same purpose, and that alone, we will concede that the sum total of the official depository funds covered as such by the securities given by the bank to the county was $39,556.
After the agreement aforesaid the county collected the interest on the drainage district bonds and the principal amount of such of them as matured, and finally on May 8, 1935, the remainder of the bonds were sold for $14,059; and the surety companies aver by their present bills that out of all the proceeds of these drainage district bonds there is a balance above the $39,556, less the $32,700 already paid by the surety companies, of $11,207, when all interest calculations are properly taken into account, and they sue for the recovery of that balance over, and which they say should have been distributed to them under the aforesaid agreement.
This brings at once into view what is to be done about the difference between the total amount of public funds on deposit with the bank aggregating $52,711, as already mentioned, and the aggregate amount of the surety bonds, which was $32,700, leaving in round figures exactly the total amount, face value, of the pledged drainage district bonds which were the property of the bank, and not of the surety companies; and this in turn introduces Sec. 2914, Code of 1930, which provides, in effect, that, "all money deposited in a bank . . . by or for a tax collector, or other officer having the custody of public funds, state, county, municipal, levee board, road districts, drainage districts or school districts," in whatever name deposited is a trust fund, for the payment of which a preference is imposed on all the free assets of the bank, as against all general creditors.
This $20,000 in drainage bonds, owned by the bank, was free of any other pledge or encumbrance, except that to the county. The public treasuries by force of the statute had an enforceable demand against these bonds, which this court has denominated as being in the nature of a lien. Had the $20,000 in bonds remained in the hands of the bank and in its own vault, none would question the right of the county to resort to them as assets of the bank against which the county would be entitled, under the cited statute, to enforce its lien to cover the public funds not otherwise fully secured. It must follow that the rights of the county in respect to these bonds were none the less when, instead of being in the vault of the bank, they were in possession of the county. The only difference thereby made was that the county could look first to the pledged assets of the bank in the county's hands, instead of having to look to, or hunt for, other free assets of the bank, if any.
It was the duty of the board of supervisors, therefore, to credit the proceeds of the $20,000 of the bank's bonds against the total amount of the public funds which were on deposit in this bank when it closed its doors. And this total amount had to be increased by the statutory interest and expenses of collection. When this was done nothing was left, as found by the chancellor, out of the proceeds of the $20,000 in bonds to be credited over to the surety companies. The finding of the chancellor was that the county has not yet been fully paid.
Such being the duty of the board of supervisors imposed by law, it was not within their power or authority to contract it away in whole or in part by any agreement with the surety companies, State of Mississippi v. First National Bank, 5 Cir., 66 F.2d 9, 13; nor could the surety companies rely upon subrogation, for that doctrine, derivative of a particular creditor, has no application to the prejudice of that creditor, in this case the county, when the claim of the creditor has not yet been paid in full. Fidelity D. Co. v. Wilkinson County, 109 Miss. 879, 69 So. 865, and State v. First Nat. Bank, supra. For their subrogation the surety companies should have looked to other assets of the bank free from priorities, if any, and not to those pledged to the county.
We have not overlooked the fact that the drainage district funds on deposit with the bank were not, strictly speaking, county funds. Nevertheless, they were public funds under the protection of Section 2914, Code 1930, and were entitled to share in the $20,000 of the bonds of the bank on deposit with the county. The county, having possession of the bonds, and having obtained the proceeds thereof, was under duty to reimburse the drainage districts, pro rata at least, out of the proceeds, which the county did, so that of this the surety companies have no right to complain.
As to the so-called revolving funds, we are of the opinion that they were within the protection of the broad terms of said Section 2914. Certainly they were not private funds, and under the statute it was immaterial in what name or guise they stood on the bank's books.
Affirmed.